What Happens If You Miss SIP Payment: A famous saying, “Patience is the most critical factor in investments,” is applied to all investment decisions, and even in mutual funds.
While some investors tend to prefer lumpsum investments in mutual funds, some go for systematic investment plans (SIPs).
SIPs are considered an investment route that is being offered by mutual funds in which one can invest a fixed amount in a particular mutual fund scheme.
Such investments are made at regular intervals – say once a month or once a quarter. The installment amount in such investments can be as little as INR500 a month.
SIPs are convenient as you can give standing instructions to your bank to debit the amount every month or quarter (as the case may be).
However, what happens if you miss SIP payment? Will it impact your returns? Will the investment plan continue? This article will address such questions. Read on to find out!
Lumpsum v/s SIP Investments
Choosing how to invest money is a common confusion for several mutual fund investors. MFs tend to offer the option to invest the amount in one go, which is known as lumpsum investment or place a specified amount at regular intervals, which is known as SIP.
In comparison to a lumpsum method, SIP is considered more flexible as investments can be made on the basis of the investor’s financial situation. On the contrary, a lumpsum method has no room for discretion or flexibility.
In SIPs, investors tend to develop a habit of making planned investments, which helps them in developing financial discipline. However, lumpsum investment is a one-time investment.
Whether investors should choose SIP or lumpsum also depends on the risk appetite of an investor. For example, SIPs are opted by individuals who have low-to-moderate risk profiles.
But, more often than not, lumpsum investments are chosen by investors having a moderate-to-high risk appetite. SIPs can help individuals in protecting their capital because investors tend to invest only a portion of the total corpus into the plan.
However, in SIPs, there is one question, “What happens if you miss SIP payment?” Let’s try and answer that!
Missing SIP Payments? Don’t Worry!
What happens if you miss SIP payment? This question restricts several individuals from making SIP investments.
One of the most common concerns for investors is that if their balance in the account falls short or they are not able to pay SIP due to any reason, will the SIP get canceled?
This is certainly not the case. Missing SIP payment is common nowadays. More often than not, insufficient balance in a bank account is the main reason.
However, a situation might arise where you are not able to pay your SIP installments in MFs due to a financial crunch.
However, there is no need to worry because SIP investments in mutual funds are considered long-term investments, and it is completely fine if you want to take a break due to other important financial commitments.
Even though mutual fund companies will not penalize you due to non-payment of a few SIP installments, your SIP will be automatically canceled in case there has been a failure for three consecutive months.
Your bank, however, will put a penalty for dishonoring auto debit payments. However, existing investments in the mutual fund scheme will remain invested and such investments will continue to earn returns.
To avoid penalties by the bank, it is advisable that investors should pause their SIP investments when he/she feels that servicing a particular SIP payment in a particular month can become difficult.
SIP payments are allowed to resume later by the investor when sufficient funds have been deposited in the bank account. Pausing and resuming SIP does not require any additional charge by AMC or the bank.
You can stop regular SIP payments by sending SIP Stop requests to MF house at least 30 days in advance if you expect a cash crunch in the future. This request can be submitted online or offline through an application form.
Since stopping SIP does not mean withdrawal, the existing investment amount will continue to generate returns. To redeem investments, investors are required to put in redemption requests.
Stopping SIP investments necessitate reviewing long-term financial goals. This is because stopping SIP investment will make you gather lower wealth than initial expectations.
Therefore, it is of utmost importance to review goals if you become irregular in SIP payments.
We believe that the question, what happens if you miss SIP payment, has now been answered. Simply put, there is no need to worry if you have missed a few SIP installments because of unavoidable circumstances.
However, make sure you understand that missing SIP payments will impact the investment corpus in a significant way. Therefore, it is highly advised to avoid missing SIP installments.
Try and keep track of the balance of the bank account which has been linked. In case your balance becomes insufficient as per your SIP payment, try to increase your balance before the arrival of the SIP due date.
Pausing the SIP investment is another option you can go with. This option is suitable if you expect heavy expenses and liquidity issues in the upcoming months.
Remember, mutual fund houses grant you the freedom for pausing SIP installments for only up to a certain number of installments.
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